People who provide you with goods and services
a. are acting out of generosity.
b. do so because they get something in return.
c. have chosen not to become interdependent.
d. are required to do so by the government.
Which of the following is notcorrect?
a. An organized withdrawal of labor from a firm by a union is called a strike.
b. The power of a union comes from its ability to strike if the union and the firm do not
agree on the terms of employment.
c. Economists who study the effects of unions typically find that union workers earn
about 25 to 35 percent more than similar workers who do not belong to unions.
d. Workers in unions reap the benefit of collective bargaining, while workers not in
unions bear some of the cost.
Scarcity means that there is less of a good or resource available than people wish to
have.
a. True
b. False
Table 3-36
RefertoTable3-36.What is Barbuda’s opportunity cost of one towel?
a. 3/5 umbrellas
b. 2/3 umbrellas
c. 3/2 umbrellas
d. 5/3 umbrellas
Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of
wheat per year, and a worker in Sylvania can produce either 2 units of corn or 6 units of
wheat per year. Each nation has 10 workers. Without trade, Freedonia produces and
consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and
consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated
between the two countries, and Freedonia sends 30 units of corn to Sylvania in
exchange for 30 units of wheat. Sylvania will now be able to consume a maximum of
a. 30 units of corn and 30 units of wheat.
b. 40 units of corn and 30 units of wheat.
c. 40 units of corn and 20 units of wheat.
d. 10 units of corn and 40 units of wheat.
When we assume that the supply of money is a variable that the central bank controls,
we
a. must then assume as well that the demand for money is not influenced by the value of
money.
b. must then assume as well that the price level is unrelated to the value of money.
c. are ignoring the fact that, in the real world, households are also suppliers of money.
d. are ignoring the complications introduced by the role of the banking system.
Hyperinflation is generally defined as inflation that exceeds 50 percent per month.
a. True
b. False
If inflation were high in some country and lawmakers in that country passed a law
requiring the central bank to maintain a low level of inflation, it is likely that
a. the short-run Phillips curve would shift right and the cost of disinflation would rise.
b. the short-run Phillips curve would shift right and the cost of disinflation would fall.
c. the short-run Phillips curve would shift left and the cost of disinflation would rise.
d. the short-run Phillips curve would shift left and the cost of disinflation would fall.
All else equal, if there are diminishing returns and constant returns to scale, then what
happens to productivity if capital and labor both increase but capital increases by more?
a. Productivity will definitely fall.
b. Productivity will definitely be unchanged.
c. Productivity will definitely rise.
d. None of the above are necessarily correct.
In economics, graphs serve two purposes: they offer a way to visually express ideas,
and they provide a way of finding and interpreting patterns when analyzing economic
data.
a. True
b. False
Deciding that A causes B when in fact B causes A is a mistake called omitted variable
bias.
a. True
b. False
Matt and Melinda are American residents. Matt buys stock issued by a German
corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself,
increases the U.S.’s net capital outflow?
a. Matt’s
b. Melinda’s
c. both Matt’s and Melinda’s
d. neither Matt’s nor Melinda’s
Disinflation would eventually cause
a. the short-run and the long run Phillips curve to shift right.
b. the short-run and the long run Phillips curve to shift left.
c. the short-run Phillips curve but not the long run Phillips curve to shift right.
d. the short-run Phillips curve but not the long run Phillips curve to shift left.
Suppose the economy is in long-run equilibrium. In a short span of time, there is a
sharp increase in the supply of labor, a major new discovery of oil, and new
environmental regulations that raise the cost of electricity production.
In the short run
a. the price level will rise and real GDP will fall.
b. the price level will fall and real GDP will rise.
c. the price level and real GDP will both stay the same.
d. All of the above are possible.
If the Federal Reserve decided to raise interest rates, it could
a. buy bonds to lower the money supply.
b. buy bonds to raise the money supply.
c. sell bonds to lower the money supply.
d. sell bonds to raise the money supply.
Which of the following would those in favor of increasing government spending rather
than decreasing taxes to prop up aggregate demand probably notagree with?
a. Traditional Keynesian analysis indicates that increases in government purchases are a
more potent tool than decreases in taxes for increasing aggregate demand.
b. Increased government spending on ‘shovelready” projects can be helpful to boost
aggregate demand.
c. Increases in government spending offer a greater “bang for the buck” than decreases
in taxes.
d. When the government gives a dollar in tax cuts to a household, that dollar
immediately and fully adds to aggregate demand.
Many U.S. business leaders argue that the current state of U.S. net exports is the result
of
a. U.S. export subsidies.
b. free trade policies of foreign governments.
c. unproductive U.S. workers.
d. unfair foreign competition.
Figure 4-26
RefertoFigure4-26.Which of the following movements would illustrate the effect in the
market for fences of a decrease in the price of wood?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D
Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result,
residents of Wisconsin who do not like breathing second-hand smoke begin driving
across the border to Illinois to eat at restaurants there. Which of the following principles
does this best illustrate?
a. People respond to incentives
b. Rational people think at the margin
c. Trade can make everyone better off
d. Markets are usually a good way to organize economic activity
Which of the following statements concerning the history of U.S. inflation is
notcorrect?
a. Prices rose at an average annual rate of about 3.6 percent over the last 80 years.
b. There was about a 17-fold increase in the price level over the last 80 years.
c. Inflation in the 1970s was below the average over the last 80 years.
d. The United States has experienced periods of deflation.
Senator Noitall says that in order to help poor countries develop, the United States
should: 1. Encourage poor countries to allow U.S. and other foreign firms to build and
operate businesses in their country; 2. Reduce or eliminate subsidizes to U.S. producers
when poor countries have a comparative advantage producing those goods the U.S.
subsidizes; 3. Work to promote political stability in poor countries; and 4. Reduce poor
countries reliance on market forces in their economies. How many of these ideas are
likely to help poor countries grow?
a. 1
b. 2
c. 3
d. 4
If the demand for loanable funds shifts to the left, then the equilibrium interest rate
a. and quantity of loanable funds rises.
b. and quantity of loanable funds falls.
c. rises and the quantity of loanable funds falls.
d. falls and the quantity of loanable funds rises.
According to the quantity equation, the price level would change less than
proportionately with a rise in the money supply if there were also
a. either a rise in output or a rise in velocity.
b. either a rise in output or a fall in velocity.
c. either a fall in output or a rise in velocity.
d. either a fall in output or a fall in velocity.
Suppose that over the past year, the real interest rate was 5 percent and the inflation rate
was 3 percent. It follows that
a. the dollar value of savings increased at 5 percent, and the purchasing power of
savings increased at 2 percent.
b. the dollar value of savings increased at 5 percent, and the purchasing power of
savings increased at 8 percent.
c. the dollar value of savings increased at 8 percent, and the purchasing power of
savings increased at 2 percent.
d. the dollar value of savings increased at 8 percent, and the purchasing power of
savings increased at 5 percent.
Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we
would expect this reduction in the budget deficit to have
a. increased both interest rates and investment.
b. increased interest rates and decreased investment.
c. decreased interest rates and increased investment.
d. decreased both interest rates and investment.
When the money market is drawn with the value of money on the vertical axis, if there
is a shortage of money then
a. the value of money rises which will make people desire to hold more money.
b. the value of money rises which will make people desire to hold less money.
c. the value of money falls which will make people desire to hold more money.
d. the value of money falls which will make people desire to hold less money.
Suppose prices of personal computers fall significantly and consumers respond by
buying more personal computers. The consumer price index
a. reflects this price decrease accurately.
b. understates this price decrease due to the substitution bias.
c. overstates this price decrease due to the income bias.
d. overstates this price decrease due to the substitution bias.
Economists are particularly adept at understanding that people respond to
a. laws.
b. incentives.
c. punishments more than rewards.
d. rewards more than punishments.
One advantage market economies have over centrally-planned economies is that market
economies
a. provide an equal distribution of goods and services to households.
b. establish a significant role for government in the allocation of resources.
c. solve the problem of scarcity.
d. are more efficient.
The slope of the production function with capital per worker on the horizontal axis and
output per worker on the vertical axis
a. is positive and gets steeper as capital per worker rises.
b. is positive and gets flatter as capital per worker rises.
c. is negative and gets steeper as capital per worker rises.
d. is negative and gets flatter as capital per worker rises.